Originations

Late Wednesday night the House Financial Services Committee passed predatory-lending legislation that could put a crimp in yield-spread premiums, a key component of how loan brokers are compensated.The National Association of Mortgage Brokers is concerned that a section of the bill that bans "incentive payments" to brokers also bans all YSPs. Rep. Gary Miller, R-Calif., proposed an amendment to clarify that YSPs are permitted if the broker's fee is disclosed early in the process and if the fee is not changed based on the consumer's decision to finance certain closing costs. Rep. Barney Frank, D-Mass., the committee chairman and sponsor of the bill, said the ban on incentive pay is designed to prevent brokers from steering borrowers into higher-cost loans. Among other things, the bill imposes standards on the origination and securitization of subprime loans. (For full details, see the Nov. 12 issue of National Mortgage News.)

New York Attorney General Andrew Cuomo said Wednesday that his office will subpoena Fannie Mae and Freddie Mac as part of a widening probe of the residential mortgage industry.Among other things, the subpoenas seek information on mortgages purchased by the government-sponsored enterprises from their seller/servicers, including Washington Mutual of Seattle. The GSEs also agreed to a demand by the New York AG that they hire an independent examiner to conduct a review of all WaMu appraisals on mortgages they purchased. In 2006, according to the eMortgage Industry Directory, WaMu sold north of $30 billion in loans to the GSEs. "In order to fulfill their duty to consumers and investors, Fannie Mae and Freddie Mac must ensure that Washington Mutual's mortgages have not been corrupted by inflated appraisals," the attorney general said in a statement. At deadline time, only Fannie had commented on the matter, saying it would fully cooperate.

Pointing to more evidence of a slowdown in the commercial real estate sector, real estate investment trusts declined 5.92% on a total-return basis as of October, according to the National Association of Real Estate Investment Trusts.NAREIT reported that considering only equity REITs, total returns on the FTSE NAREIT indices (including price gains and dividend yields) were down 2.37% for the first 10 months of the year. Considering mortgage REITs alone, total returns as of October were down 44%. The specialty and industrial REIT sectors have performed best so far this year, turning in total returns of 16.86% and 13.15%, respectively, the REIT industry trade group said. Concerns about a slowdown in consumer spending notwithstanding, two retail sectors turned in positive returns, with "free-standing" retail posting an 8.08% gain and regional malls 3.98%. The other REIT sector that was positive for the period is health care (0.08%). REITs have been outperforming other investment avenues since 2001, turning in a total return of 34.35% for 2006. NAREIT can be found online at http://www.nareit.com.

Cogent Road, a provider of Internet-based applications headquartered in San Diego, has launched Funding Suite, a redesigned database architecture underlying the credit report that allows new opportunities and products for brokers.Included in Funding Suite are the following features: Intelligent Credit Report with X-Ray technology; dynamic reimbursement; PaySaver loan officer billing option; automatic discounting; and universal credit file reissuing. The company said Intelligent Credit Report is a dynamic display of client credit data allowing faster, more accurate prequalifying assessment. In Funding Suite 3.0, all tradelines provide an interpretation of the payment history in easy-to-understand language, making even the most complex tradelines more easily understood, Cogent Road said. X-Ray technology conducts a deep analysis of the underlying credit data used to calculate the credit score to identify potential errors that may be harming the score along with the points gained by fixing such errors. The company can be found on the Web at http://www.cogentroad.com.

Steel Mountain Capital, a Lakewood, Colo.-based investor in performing, subperforming, and nonperforming assets, has allied with a for-profit subsidiary of America's Community Bankers to assist community banks with valuation and disposition strategies for real estate assets."The specific focus of the partnership will be the purchase of nonperforming residential and commercial real estate mortgages," the Colorado-based investor said. "In addition to member-advantaged pricing, Steel Mountain will provide a quick and efficient response, with a streamlined purchase and sales agreement, a portfolio review and evaluation within 24 hours, and a funding timeline of 30 days or less." ACB and the ABA plan to merge on Dec. 1, and Steel Mountain also plans to offer its services to the ABA at that time.

IAC, New York, has separated itself into five publicly traded companies, one of which is named after and includes LendingTree, an online mortgage lender and realty services exchange based in Charlotte, N.C."LendingTree, obviously under pressure from the macro real estate and mortgage environment, is nevertheless a valuable asset with a great brand and will be freed to participate fully with its own currency," IAC said. C.D. Davies will continue to serve as chief executive officer of the new LendingTree, a company that RealEstate.com, Domania, GetSmart, Home Loan Center, and iNest also will be part of. Bret Violette will continue to serve as president of RealEstate.com. IAC can be found on the Web at http://www.iac.com, and LendingTree can be found at http://www.lendingtree.com.

IndyMac Bancorp Inc., Pasadena, Calif., has reported a net loss of $202.7 million ($2.77 per share) for the third quarter, compared with net earnings of $86.2 million ($1.19 per share) a year earlier.IndyMac said its pretax credit costs totaled $407.7 million in the third quarter, compared with $103.5 million in the second quarter. "We are clearly disappointed with this quarter's results, which were driven by deteriorating mortgage delinquencies and a declining housing market, combined with an unprecedented collapse in the secondary market for non-GSE loans and securities -- IndyMac's primary business," said Michael W. Perry, IndyMac's chairman and chief executive officer. "While this loss is substantially higher than we had been forecasting, it was clearly not unexpected given the magnitude of the losses being reported by others in our industry and the recent decline in our stock price." IndyMac can be found online at http://www.indymacbank.com.

The National Association of Mortgage Brokers has officially launched its "Lending Integrity Seal of Approval" at an NAMB West news conference, where association officials described it as going beyond federal, state, and other industry requirements.Among the requirements for the seal are: three business references; passing a national criminal background check; professional education training that includes instruction in ethics; agreeing to abide by the NAMB's formal ethics grievance review process; and a current state-issued mortgage license or registration. Asked about the seal's relationship to developments in Washington, where at least two proposed changes to industry rules have raised concerns among brokers, NAMB president George Hanzimanolis said it "wasn't done to send a message to Congress," but rather because the association "saw a need on the consumer side." However, Mr. Hanzimanolis said he believes Congress will see the NAMB's seal as a positive move. The NAMB can be found online at http://www.namb.org.

Since July, residential lenders have tightened their underwriting standards on prime jumbo mortgages, as well as alternative-A and subprime loans, according to a Federal Reserve Board survey of senior loan officers.Banks increased their loan fees, spreads, and downpayment and income documentation requirements on prime jumbo mortgages, according to the October survey. Over one-third of respondents said originations of prime jumbos had declined, and 10% reported an increase. Meanwhile, 40% of the loan officers reported tightening credit standards on conforming prime loans, 50% reported tightening on "nontraditional" mortgages (alt-A, interest-only, and payment-option adjustable-rate mortgages), and 55% reported tightening on subprime loans over the past three months. At a fair-lending conference, Fed Governor Randall Kroszner said Fed surveys show significant tightening on subprime loans. He added that delinquencies and foreclosures on subprime loans are "likely to continue to rise for a number of quarters."

Forty states are planning to participate in the Nationwide Mortgage Licensing System that will track state-licensed mortgage lenders, loan officers, and brokers, and seven states are ready to go onto the system within 60 days of its launch on Jan. 2."These seven states are creating the initial critical mass necessary for a successful launch of the system," said David Bleicken, president of the American Association of Residential Mortgage Regulators. The states are Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York, and Rhode Island. The AARMR and the Conference of State Bank Supervisors have developed the licensing system to track unethical mortgage professionals as they move from state to state and from company to company. At the same time, the House Financial Services Committee is considering a predatory-lending bill (H.R. 3915) that would require federal regulators to create a registry for mortgage originators at federally regulated banks and their subsidiaries. And like state-licensed mortgage lenders, bank loan officers would have to have a "unique identifier."

The Federal Reserve Board is close to proposing that all subprime mortgages should have escrow accounts, according to a Fed governor who is working on updating the Home Ownership and Equity Protection Act regulations.The failure to escrow taxes and insurance can lead to payment shock, Randall Kroszner told a Consumer Bankers Association fair-lending conference. "It is common practice for these payments to be escrowed in prime markets, and I see no reason that escrows should not be standard practice in the subprime markets, too," Mr. Kroszner said. The Fed is expected to issue proposed changes to the HOEPA regulations before the end of the year. Mr. Kroszner said the Fed also plans to issue proposals by the year-end that ban several deceptive advertising practices and require important consumer disclosures earlier in the mortgage process so consumer can shop around and compare loan products.

Fannie Mae has announced that it will file its first-, second-, and third-quarter financial reports with the Securities and Exchange Commission on Nov. 9 and host a conference call to brief investors and analysts."With these filings, the company will become current in its financial reporting requirements," the giant mortgage company said. Fannie Mae has not filed a quarterly report (Form 10-Q) since the second quarter of 2004 after it was discovered that the company manipulated accounting standards and overstated earnings by billions of dollars. The publicly traded company paid a $400 million fine to the SEC and restated earnings for 2001, 2002, 2003, and the first half of 2004. Fannie's regulator currently requires the company to maintain a 30% capital surplus until it returns to timely financial reporting and corrects its internal controls and accounting systems. Analysts will be waiting to hear how much longer the expensive process of rebuilding those systems will take. Fannie Mae can be found online at http://www.fanniemae.com.

New York Attorney General Andrew Cuomo is planning to file more lawsuits related to problems associated with lender pressuring of appraisers, but he is also preparing to take other legal actions that highlight another "systemic, industrywide" problem next week."We will begin other cases that make other points on systemic frauds within the housing arena," Mr. Cuomo said at a news conference in Washington, where he endorsed a bill to reform appraisal and servicing practices. The New York AG recently filed a lawsuit against First American Corp. and its appraisal management company for allegedly succumbing to pressure to change valuations. He stressed that his office pursued the First American case because it provides the "most graphic illustration of this issue" and that it cannot be dismissed as an isolated case. WaMu has said it was "surprised and disappointed by the allegations in the complaint related to [First American's] eAppraiseIT unit" and has suspended its business relationship with eAppraiseIT "until we can further investigate the situation." First American has said it believes the allegations have no basis in fact or law and that the program challenged by the attorney general "has been vetted and approved by the federal regulator responsible for oversight of such programs."

The National Association of Mortgage Brokers has signed a cooperation agreement with the Japanese Mortgage Planners Association at the U.S. group's first-ever NAMB West conference in Las Vegas.Shinya Imura, who founded the JMPA, said the group started only last June, although the entire project is about five years old. He has even created a textbook to educate potential mortgage planners, which he is modeling after financial planners in Japan. Don Takao Dogami, another member of the JMPA delegation, said NAMB is helping with the education program, which will be modified for the Japanese system. JMPA is looking to introduce the American system to Japan and "for that we need NAMB's help," Mr. Dogami said. Right now, banks do the majority of the mortgage originations in Japan, although with the rise of securitization, a mortgage banker business is developing. Currently there are no active mortgage planners (as the mortgage brokers will be called) in Japan. NAMB president George Hanzimanolis said his organization is "looking forward to learning from your culture," and is looking to form a strong bond with JMPA.

Gramercy Capital Corp., a New York-based commercial real estate financing affiliate of real estate investment trust SL Green Realty Trust, is acquiring the Jenkintown, Penn.-based American Financial Realty Trust, a Lewis Ranieri-backed company in the commercial real estate net lease space, for a total price of about $3.4 billion.Gramercy reports that the purchase price includes the assumption of AFRT's existing debt, as well as the payment per AFRT share of $5.50 in cash and 0.12096 shares of Gramercy common stock. The exchange ratio is not subject to change. The acquisition is expected to create an "integrated commercial real estate finance and operating company." After the acquisition closes, which is slated for the first quarter of 2008, Gramercy expects to own about 27 million square feet of commercial real estate in 37 states, adding to its existing portfolio of $3.5 billion in debt investments. Marc Holliday, CEO, Gramercy Capital, noted, "By combining Gramercy's financial resources and capital markets expertise with SL Green's recognized portfolio investment and asset management skills, we believe we can fully realize the vision behind the original creation of American Financial."

The Federal Housing Administration is reaching out to nearly "1.2 million at-risk American homebuyers" to inform them about the new FHA Secure refinancing program.FHA commissioner Brian Montgomery told a congressional panel that his agency is using a direct-mail database to contact subprime borrowers with 2/28 and 3/27 ARMs that are due to reset by 0ctober 2008. Over 1,500 delinquent borrowers have already filed applications to refinance into a FHA Secure mortgage since the agency launched the new program Sept. 5. "Though still a very new program, 575 FHA-approved lenders are already using FHA Secure to rescue delinquent borrowers from the potential loss of their homes," Mr. Montgomery testified. Meanwhile, FHA has received 74,000 applications by current conventional borrowers who want to refinance into a FHA loan since Sept. 5. FHA received 37,500 of these applications in September and another 36,500 in October.

The largest subprime servicers should be able to move ahead with loan modifications now that they have worked through most of the problems associated with the requirements of the mortgage-backed securities contracts, according to Iowa Attorney General Tom Miller."They feel they have the discretion and authority needed to make loan modifications where those modifications benefit the investor and homeowner," Mr. Miller told the House Financial Services Committee. "Upwards of 95% of the pooling and servicing agreements do not pose significant constraints, according to the servicers we have met with." Mr. Miller heads up a working group of state AGs and banking regulators that met with the 10 largest subprime servicers in September and plans to meet the 10 next-biggest servicers during the week of Nov. 5. He noted, however, that piggyback 80/20 loans are a problem because the first and second loans are in separate securitizations with different investors and servicers.

CitiMortgage, St. Louis, ended its correspondent program for prime second lien/home equity loans on Nov. 2, according to a company bulletin.The company said it would be requiring all locked loans in the pipeline to be purchased no later than Dec. 31 of this year. Citi said the decision to end the program reflected its efforts to "monitor the market" and focus on "products and programs appropriate for the market." The company said it is "not moving away from the overall mortgage market" and is making "fluid decisions in the current environment to leverage the products that will allow us to continue to grow our business."

Reeling from a multi-billion dollar decline in U.S. subprime mortgage-related exposures that forced its chief executive to step down, the New York-based Citigroup Inc. has made plans to start a new unit to focus on the problem and repositioned its leadership. The new unit will be solely focused on Citi's approximately $55 billion in subprime mortgage-backed securities and related exposures and be run separately from the other mortgage-related capital markets and banking units, according to a statement issued by Sir Win Bischoff, chairman of Citi Europe and Citi's new acting CEO. Mr. Bischoff and executive committee chairman Robert Rubin, Citi's new chairman of the board, are replacing departing chairman and chief executive officer Charles Prince. Mr. Prince resigned Sunday, citing the large scope of MBS-related losses that are expected to cut Citi's revenue roughly $8 billion-$11 billion and reduce net income approximately $5 billion-$7 billion on an after-tax basis. Citigroup can be found on the Web at http://www.citigroup.com.

General Electric has officially closed its subprime unit, WMC Mortgage of Burbank, Calif., and is preparing to sell its remains to an undisclosed buyer, MortgageWire, has learned."They're down to a transition team," said a spokesman for GE Money, a division that oversees WMC. Last year the nonprime lender ranked 21st among all funders in the U.S., according to the Mortgage Industry Directory. The spokesman said he no longer represents WMC but said the lender is being sold. He would not elaborate. WMC president and CEO Laurent Bossard could not be reached for comment at press time. On Monday morning a receptionist at WMC said there were no executives in the building who could comment.